Should Investors Buy Visa Instead of Mastercard? | V Stock vs. MA Stock
Summary
Parkev initiates his analysis by highlighting Visa and MasterCard as two dominant financial service companies benefiting from limited competition, which has led to high and growing profitability. He notes that regulators have even accused them of collusion, which paradoxically is good news for investors. Both companies have demonstrated robust revenue growth, with Visa's revenue nearly tripling to $44.5 billion and MasterCard's more than tripling to over $35 billion since 2017. Their business model involves earning a small fee plus a percentage on transactions processed through their networks, a model that has capitalized on general economic growth and recent inflation, driving up nominal consumer spending.
Parkev emphasizes their exceptional operating profit margins: Visa boasts a 67% margin over a decade, which Parkev states is the best among companies he tracks, while MasterCard maintains a strong 59%. These margins are likely to persist or improve due to the strong network effect they have built, where widespread merchant acceptance attracts consumers, and increased consumer usage further incentivizes merchant participation.
However, Parkev also identifies rising risks. Governments worldwide are becoming more hostile towards US-based financial networks, with some attempting to disengage their economies from Visa and MasterCard. Additionally, emerging innovators like stablecoins and cryptocurrencies pose a threat by potentially circumventing these networks and eroding market share.
Regarding valuation, Parkev observes that both stocks trade at a P/E ratio of 24, which is below their historical average. He further employs a Discounted Cash Flow (DCF) model to estimate intrinsic values.
Parkev concludes that while he would choose Visa over MasterCard if forced to pick only one, investors are not limited to a single choice. He states that both Visa and MasterCard are "Hall of Fame" companies trading at relatively fair prices, making them excellent long-term investments. Parkev personally owns both stocks in his portfolio.
Mentioned Stocks
Reasoning: Parkev highlights Visa's dominant market position, exceptional 67% operating profit margin over a decade, and strong revenue growth (almost tripling to $44.5 billion since 2017). He estimates its intrinsic value at $377 per share, slightly above the current market price of $364. Despite having slower growth and fewer opportunities compared to MasterCard, Parkev considers Visa a "Hall of Fame" company trading at a relatively fair price, making it an excellent long-term investment. Parkev also explicitly states he owns Visa.
Reasoning: Parkev notes MasterCard's dominant market position, strong 59% operating profit margin, and impressive revenue growth (more than tripling to over $35 billion since 2017). He estimates its intrinsic value at $523 per share, which is somewhat below the current market price of $559. While having a slightly lower operating margin than Visa, Parkev sees MasterCard offering faster growth and more opportunities. He considers MasterCard a "Hall of Fame" company trading at a relatively fair price, making it an excellent long-term investment. Parkev also explicitly states he owns MasterCard.